The HBP allows a tax-free withdrawal out of your RRSP while you first purchase an eligible home. HBP participants can withdraw as much as $60,000, as can their spouse or domestic partner, for a complete of $120,000. (Before April 16, 2024, the RRSP withdrawal limit was $35,000 per person.)
You are considered a first-time buyer if neither you nor your spouse or partner have owned and lived in a house through the current yr or the previous 4 years. However, for a property to be considered a professional home, it have to be positioned in Canada, so your Portuguese vacation property won’t qualify for the HBP.
If you were to withdraw money out of your RRSP to purchase this property, Andy, the withdrawal could be added to your other income for the yr and could be fully taxable. That probably makes it a poor option for getting the property.
If you don’t use a property for a big a part of the yr or don’t plan to rent it out while not in use, my math argues in favor of renting fairly than buying.
Taxes on rental income from a foreign property
If you own a rental property abroad, the rental income is commonly subject to foreign tax. For example, nonresidents in Portugal are subject to tax on Portuguese-source income. You must also report foreign rental income in your Canadian tax return because Canada taxes worldwide income. In Canada, foreign tax typically qualifies for a foreign tax credit to avoid double taxation of the identical income. Interest on funds borrowed to buy the property, whether in Canada or abroad, could be tax deductible.
If you own foreign assets equivalent to a rental property, use Form T1135 – Statement for verification of foreign income to reveal your property as a part of your annual tax return. This form is required when you own certain foreign investments, equivalent to a rental property, valued at greater than CAD$100,000.
Taxes when selling a foreign property
A foreign property may qualify for the first residence exemption, meaning its sale is just not subject to capital gains tax in Canada. However, most individuals’s foreign properties are less priceless than their Canadian properties, so it is just not common to say a primary residence exemption for a foreign property.
If your primary residence is in Canada and also you sell a foreign property, including one in Portugal, it is generally subject to foreign capital gains tax within the local currency. Canada also taxes the capital gain based on the acquisition and sale prices in Canadian dollars.
